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February 23, 2024

Malta transposes EU's Global Minimum Tax Directive reflecting non-implementation position for IIR, UTPR and QDTT

  • Malta has transposed into local legislation the European Union's (EU)'s Global Minimum Tax Directive.
  • The Income Inclusion Rule (IIR), Undertaxed Profits Rule (UTPR) and Qualified Domestic Top-up Tax (QDTT) will not be introduced in Malta for FY 2024.

Following an announcement by the Minister for Finance and Employment that Malta will not be introducing any component of the Organisation for Economic Co-operation and Development's (OECD) Global Anti-Base Erosion Rules (GloBE Rules) for 2024, Malta issued legislation reflecting this position, publishing Legal Notice 32 of 2024 (LN 32/24) on 20 February 2024.

LN 32/24, titled "European Union Global Minimum Level of Taxation for Multinational Enterprise Groups and Large-Scale Domestic Groups Regulations, 2024," does not feature the Income Inclusion Rule (IIR), Undertaxed Profits Rule (UTPR) or a Qualified Domestic Top-up Tax (QDTT) that are reflected in the EU's Global Minimum Tax Directive (Council Directive (EU) 2022/2523), through which the OECD's GloBE Rules were adopted throughout the European Union.

Notwithstanding Malta's decision to forego introducing any component of the GloBE Rules, as articulated in rule 2(1) of LN 32/24, the transposition of certain aspects of the Global Minimum Tax Directive was still required to help meet the EU Council's aim to "ensure the proper functioning of the system of global minimum level of taxation for multinational enterprise groups and large-scale domestic groups in the Union." Accomplishing the Council's goal in part requires imposing an obligation on "domestic constituent entities in those Member States to provide information to constituent entities in other Member States and third-country jurisdictions, so that other Member States and third-country jurisdictions are able to apply the UTPR" while also minimizing the administrative burden on delaying jurisdictions like Malta.

In line with above, the provisions of the Global Minimum Tax Directive that were transposed in Malta were those contemplated in Chapters I, VIII, IX and X of the Directive. Specifically, the following articles of the Global Minimum Tax Directive were transposed via LN 32/24:

  • Article 2, which outlines the scope of the Global Minimum Tax Directive, namely applicable to Constituent Entities (CEs) located in Malta that are members of either a multinational enterprise (MNE Group) or a large-scale domestic group deriving annual revenues of €750,000,000 or more; CEs meeting certain criteria are excluded
  • Article 3, which provides a list of definitions
  • Article 4, which distinguishes between different types of CEs and establishes how to determine the location of each type of CE for purposes of the Global Minimum Tax Directive
  • Article 44, which outlines the filing obligations, particularly:
    • The top-up tax information return due by a CE located in Malta and instances in which the obligation would not apply
    • The information that must be reported in a top-up tax information return
    • The deadlines applicable in Malta
  • Article 45, which addresses how notifications are to be made and their validity
  • Article 46, which imposes administrative penalties for noncompliance
  • Article 47, which outlines the treatment of deferred tax assets, deferred tax liabilities and transferred assets upon transition — i.e., in the first fiscal year in which an MNE Group or a large-scale domestic group falls within the scope of the Global Minimum Tax Directive
  • Article 48, which provides the rates applicable vis-à-vis the substance-based income exclusion during the transition period
  • Article 49, which provides for an initial phase of exclusion from the IIR and UTPR for in-scope groups
  • Article 50(2), which imposes an obligation on any MNE Group whose ultimate parent entity is located in Malta to nominate a designated filing entity, among other things
  • Article 50(3), which provides that the UTPR percentage as computed in terms of the Global Minimum Tax Directive for Malta shall be deemed to be zero
  • Article 51, which extends the deadline for the submission of the top-up tax information return and the notifications to 18 months for the transition year
  • Article 52, which lays out the parameters that a legal framework implemented in a third-country jurisdiction must satisfy to be considered equivalent to the qualified IIR implemented in the Global Minimum Tax Directive
  • Article 55, which provides for bilateral agreements on simplified reporting obligations

LN 32/24 will apply for fiscal years beginning from 31 December 2023.

Other relevant developments

On 28 December 2023, the Commissioner for Tax and Customs announced that, with effect from any financial year ended in 2023 — locally referred to as the year of assessment 2024, a person who has made a capital expenditure on Intellectual Property or Intellectual Property Rights may choose to fully deduct the expenditure under article 14(1)(m) of the Income Tax Act (Cap. 123 Laws of Malta) in the year incurred or the year in which the Intellectual Property or Intellectual Property Rights are first used or employed in producing the income.

The Commissioner also announced that if a capital expenditure on Intellectual Property and Intellectual Property Rights was incurred in a previous period, any deductions remaining unclaimed may be claimed in full in the year of assessment 2024. The Commissioner noted by way of example that, if "Intellectual Property was acquired in the year of assessment 2023 and a 33.33% deduction of the expense was claimed in that year of assessment, the person can claim the remaining 66.67% in the year of assessment 2024."

Note that the accelerated deductions described above may only be claimed against income produced through the use or employment of the Intellectual Property or Intellectual Property Rights.

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Contact Information

For additional information concerning this Alert, please contact:

Ernst & Young (Malta), Msida

Ernst & Young LLP (United States), Maltese Tax Desk, New York

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

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